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Covid-19 package holiday cancellations: a clear contractual entitlement to a 14 day refund ignored by most tour operators

Daniel Shapiro QC considers the obligation on package holiday operators to provide a refund within 14 days of cancellation, and tour operators’ suggestions to clients to claim on travel insurance.

The Easter holidays were cancelled.  In this Covid-19 pandemic, people’s health and avoiding the collapse of the NHS rightly came before the beach or the mountains.  The inconvenience of lockdown was a small price to pay.  However, what happens to the significant cost a consumer may have paid in advance for the holiday?  Where it was a package holiday then the consumer may have assumed the advance payment was safe and would be refunded if the holiday could not proceed.  It seems, however, that some package holiday companies are refusing to refund the cost of cancelled holidays.  What is the legal position?

Where a booking is for a package holiday (defined at regulation 2(5)) to which the Package Travel and Linked Travel Arrangements Regulations 2018, Regulation 2018/634 (the “Package Travel Regulations”) apply, the “organiser” of the package is required to provide a refund in full within 14 days where the organiser cancels the holiday “because of unavoidable and extraordinary circumstances”.  This is a requirement imposed by Regulations 13(2), 13(3) and 14(3) and also a contractual obligation: Regulations 13(1) and 14(1) provide that the cancellation provisions are “implied as a term in every package travel contract

For convenience the relevant regulations are set out below:

13.— Termination of the package travel contract by the organiser

(1)        The provisions of this regulation are implied as a term in every package travel contract.

(2)        Paragraph (3) applies where—

(b)        the organiser is prevented from performing the contract because of unavoidable and extraordinary circumstances and notifies the traveller of the termination of the contract without undue delay before the start of the package.

(3)        The organiser—

(a)        may terminate the package travel contract and provide the traveller with a full refund of any payments made for the package;

(b)        is not liable for additional compensation.”.

 

14.— Refunds in the event of termination

(1)        The provisions of this regulation are implied as a term in every package travel contract.

(3)        Any—

(b)        refund required pursuant to—

(ii)        a termination under regulation 13(3), must be made to the traveller without undue delay and in any event not later than 14 days after the package travel contract is terminated.”

Significantly, the Package Travel Regulations themselves therefore make express provision for “unavoidable and extraordinary circumstances”.  It is likely that “unavoidable and extraordinary circumstances” include Covid-19.  It is therefore not correct for a package operator to suggest that that Covid-19 is “extraordinary” and therefore the Package Travel Regulations do not apply.  To the contrary, the Package Travel Regulations clearly do, and intend to, provide for the extraordinary.

Further, as Regulations 13(1) and 14(1) provide that the cancellation provisions are implied as a term in every package travel contract, even if the travel contract does not contain this language as an express term it will be in the contract as an implied term.  Therefore, the consumer’s travel contract makes provision for what should happen in the event of the extraordinary circumstances of Covid-19 causing the cancellation of the package holiday.  It is again not correct for an operator to say that the travel contract makes no provision for Covid-19 cancellations.  To the contrary, it does so by the implied term.

The requirement of the Package Travel Regulations and also the term of the travel contract is clear as to what is required.  A refund must be paid “without undue delay” but “in any event not later than 14 days” after cancellation.  The Package Travel Regulations contain an unequivocal obligation to pay the refund and within a clearly stated time period.  Tour operators are obliged to make the payment.  In failing to do so, a tour operator is flouting the Package Travel Regulations and breaching its travel contract with the consumer.

It is suggested by ABTA (the trade association for tour operators) that the obligation in the Package Travel Regulations ought to be changed to relieve tour operators of the obligation to refund within 14 days.  Leaving aside whether that principle would be right, it is doubtful such a change could be effected.  As the obligation to refund is an implied term of the travel contract, it is hard to see how that term between consumers and individuals is likely to be retrospectively changed by legislation.

As a matter of principle, where both individual consumers and package tour operators are suffering straightened economic circumstances, it is difficult to see why consumers should be forced to give up their existing contractual rights and made to give what is effectively an interest free loan to tour operators.  That would be a consumer bailout of package tour operators.

The present situation where tour operators are not providing refunds within the 14 days is a de facto consumer bailout of those companies forced upon consumers by the companies themselves, and contrary to the consumers’ contractual rights.

It remains to be seen whether tour operators are able to continue to refuse to provide a refund within 14 days in breach of the travel contract and the Package Travel Regulations.  There may be intervention from third parties.

First, if a consumer purchased a package holiday using a credit card then the consumer is entitled to a refund under section 75 of the Consumer Credit Act 1974.  Credit card companies may feel that they do not wish to subsidise the tour operators and will presumably claim from the operators the refunds they were obliged to give to their cardholders.

Second, where tour operators are directing consumers to claim on their travel insurance then (assuming the individual is able to claim under the terms of the relevant policy) the tour operator has every incentive to bring a subrogated claim against the tour operator to recover its indemnity to its insured.  In some ways, it is surprising to see tour operators directing consumers to claim on their travel insurance as travel insurers will have the resources, legal departments and external solicitors to bring subrogated claims against the tour operators which individual consumers will not.  (If consumers did have such resources the contractual provisions could not be avoided).

It may also be that tour operators rethink their present stance, put finance in place, and avoid the litigation likely to ensue from failing to make refunds they are obliged to make.  That may be better for business in the longer term than by aggravating their customers by refusing to make refunds in line with their obligations.

The contents of this article, current at the date of publication, are for reference purposes only.  This article and its contents do not constitute legal advice and should not be relied upon as such.  Specific legal advice about your specific circumstances should always be sought and no action should be taken based on this article.



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